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Netflix freeloaders, relax: You can probably get away without paying for a while longer

Reuters/Stephen Chernin
Netflix might not be a House of Cards, after all.
Published This article is more than 2 years old.

It ‘s been a watershed week for Netflix, which posted another impressive quarter of subscriber growth, but saw one of its biggest shareholders and loudest proponents taking a step toward the exits.  But as with everything related to this highly divisive company,  opinion is split on its ability to keep growing.

With almost 30 million paying video streaming customers in the US, Netflix is not just bigger than HBO;  according to BTIG research (registration required) it’s now the most watched pay TV channel in the US.  With its users averaging 93 minutes of streaming per day, more human hours are spent watching  Netflix each day than the Disney Channel.

CEO Reed Hastings said this week he was targeting 6 million new streaming customers in 2014, about the same as Netflix expects to add this year.  But there could be a very easy way for Netflix to achieve this and then some: by clamping down on all the college roommates, coworkers and other freeloaders sharing passwords with each other.  Wedbush Securities analyst Michael Patcher has estimated that there are 10 million people using Netflix without paying for it.

There’s no suggestion Netflix is actively considering this. A spokesman declined to comment on the matter. In fact, everything suggests Netflix is comfortable with its existing policy, which is pretty easy for freeloaders to take advantage of. Netflix allows for six devices to be registered on each account, two of which can stream content simultaneously.

Perhaps the following chart explains why:

There are about 90 million households with a fixed-line broadband connection in the US, according to the OECD.  That means there could be as many as 60 million households for Netflix  to tap into.

And even if Netflix fails to grow its subscriber base as fast as it wants, there’s another way it can cover its rising content costs and grow earnings: by raising prices. Sure, its last attempt to do so was a disastrous failure. But a lot has changed since then, including its launch of hugely successful original shows like House of Cards. Still the company is likely to tread softly. BTIG’s Rich Greenfield thinks Netlfix will hike its prices. But only by $1 a month,  and not until 2016. If so, the chances are it won’t take any steps to clamp down on freeloaders at least until then, either.

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